Upgrading the energy efficiency of the country’s homes is vital, say experts, and green mortgages can incentivise both homeowners and landlords to achieve this.
Paragon Bank, which has increased its buy-to-let lending by 33.9% over the past year, believes helping customers invest in and upgrade the energy efficiency of their properties is crucial for the future. The firm, which has seen many of its landlord customers expanding their portfolios recently, launched its green mortgage product earlier in 2021.
Commenting, director of mortgages Richard Rowntree said: “A key highlight for me during the year was the launch of our green proposition. Upgrading the energy efficiency of the private rented sector will be a difficult challenge, but one Paragon is committed to playing a role in. We will continue to innovate in this space to help our customers invest in more energy efficient homes, as well as upgrade existing stock.”
Green mortgages on the rise
As the UK pushes forwards with its drive to lower carbon emissions across all industries, the property market is a key component of this mission. A so-called ‘green mortgage’ is a product that incentivises borrowing on energy-efficient homes, whether they be new properties with top EPC ratings or upgraded ones.
There are varying figures on how many such products currently exist on the market. One study by Mortgage Advice Bureau, looking at 64 mortgage lenders, showed that just 25% currently offer green mortgages. However, 88% said they plan to introduce them.
Ben Thompson, deputy CEO at Mortgage Advice Bureau, says: “We welcome recent moves by lenders to look more favourably upon borrowers’ affordability based on them buying more energy efficient homes. This makes good sense and we’d like to see more of this positive action.
“However, we need combined industry thinking and innovation to work out how best and who best can influence those properties not meeting A, B, or C ratings to make sure the challenge is being properly tackled. Only then will the real benefits start to be felt.”
Could costs put people off?
A separate report from UK law firm TLT shows that a huge 92% of providers either already offer green finance products or plan to do so in 2022. While this is a great achievement in the sense of getting lenders on-board to achieve net zero carbon emissions, there is still a long way to go, according to TNT.
One of the things that puts people off is the cost, says the firm. While some lenders make borrowing easier for green mortgages as an incentive, rates can be higher. While on the flip-side, the money saved in energy bills as a result of living in a more energy-efficient home could offset this, it is still a barrier.
The report showed that 36% of people believe the cost is a “critical” or “significant” obstacle.
Unlocking the potential of green finance
Robin Penfold, partner at TLT, says: “Green finance is an opportunity for the entire industry to come together, with government and regulators, to develop the future landscape for the financial services sector. Key to unlocking the opportunity is developing a common understanding of what green finance is and isn’t.
“Developing a common framework that sets the bar for green finance is key to unlocking the full potential of this market, and to positioning the UK as a leader of the green finance revolution.”
As the world as a whole becomes more environmentally conscious, particularly with some of the statistics brought to light by Cop26, people will be more inclined than ever to play their part. This will apply to those in the private rented sector, too, who make up around a fifth of all households in the UK.
Investing in a new-build property or sometimes a newly renovated and upgraded one is one way property investors and landlords can ensure the greenest credentials for their rentals.